BC Buys Arctos Project From Fortune Minerals And POSCAN For $18.3 Million

On Monday,the Government of British Columbia announced that BC Rail would buy 61 coal licenses in northwest British Columbia from Fortune Minerals (TSX:FT) and POSCO Canada for approximately $18.3 million.

The buy comes as the government looks to resolve issues raised by the local Tahltan Nation regarding development of the project. Fortune and POSCO will retain an exclusive right to repurchase the coal licenses at the same price for a ten year period, "after the Province and the Tahltan Nation have developed a shared vision for the Klappan."

"This is a fair solution that recognizes the investment made by the companies secures the potential value of these assets for the future and respects the position of the Tahltan Nation," said Energy and Mines Minister Bill Bennet in a statement.

As the Globe and Mail reported, Bennet said he's been involved with the issue for over a decade, aiming to find a solution that works for both parties. The minister noted that the Tahltan region is facing a "huge amount of potential development," and empathized with concerns from those living in the area.

"It worries them. They live in an area that until recently wasn't on the [electricity] grid, they live a traditional lifestyle and they have indicated to me it's all happening too fast," he said. The Klappan region is an area of significant cultural importance for the Tahltan Nation. It's known as the Sacred Headwaters, where the Stikine, Skeena and Nass rivers meet.

Still, as mentioned above, the government recognizes the significant investment made in the project by Fortune and POSCAN (the companies have held the assets that make up the Arctos project since 2002) and Bennet is hoping that the acquisition by BC rail will allow for the time needed to discuss how things will move forward in the region.

According to the government's release, British Columbia Railway Company is using its cash reserves to acquire the licenses as an agent of the province, and the transaction will have no impact on the government's current fiscal plan.

"This latest news gives us years - rather than weeks or months - to develop a sustainable long-term management plan and agreement for an area that is so important to Tahltan people," said Tahltan Central Council president Chad Day in a statement.

Fortune was also pleased with the solution. "This is a good outcome for Fortune Minerals in the context of the current market," said Fortune Minerals president Robin Goad in a statement. "Fortune and POSCAN invested significant funds and effort to try to resolve the complex First Nations issues associated with the proposed development of the Arctos Project." Each company will receive roughly $9 million for amounts already expended on the project and for supporting the BC government in its move to provide more time to continue dialogue with the Tahltan.

Goad added that, given the current state of the met coal market, the sale is a move that makes sense for the company. "Mining is a cyclical industry, and considering the weak metallurgical coal prices at the present time, it was considered prudent to step back from Arctos and focus our efforts on our near-term production assets," Goad said. "The back-in option allows for the repurchase the coal licenses should conditions improve and make development an attractive path forward for the joint venture."

Investors in the company appear to have agreed as well. On the back of the news, Fortune's share price has jumped over 20 percent, or two cents, to trade at $0.105. Roughly 600,000 shares of the company traded hands, more than four times the average daily trading volume for the company.

Certainly, while issues surrounding social license can be tricky to handle, all parties involved in this particular situation appear to be satisfied with the government's unique solution to the problem. Certainly, it will be interesting to keep an eye on discussions regarding the region moving forward.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.